Michigan LLC Taxes

Understanding the tax obligations of a limited liability company (LLC) in Michigan is an essential part of making your business compliant with all relevant state and local regulations.

This article will explore the various kinds of Michigan LLC taxes – from income to property – and also detail the process for accurately filing your LLC taxes in Michigan. Read on to keep your business on the right track with the state’s tax laws.

Recommended: Schedule a free consultation with 1-800Accountant to stay on top of your taxes. 

How Is an LLC Taxed in Michigan?

Taxation in Michigan isn’t applied in the same way to all LLCs – instead, it varies depending on a number of factors, such as an LLC’s nature, locality, and tax election.

While LLCs typically benefit from pass-through taxation by default, they can also elect to be taxed as one of the following:

• C Corporations: The LLC is treated as a separate entity to its owners, paying corporate tax rates on its total profit while the owners also pay personal income taxes on any distributions they take.
• S Corporations: In return for paying owners a “reasonable salary,” the LLC’s remaining profits are distributed among members without a need to pay FICA or self-employment taxes on them.

The following sections go into the various tax responsibilities of your LLC at local, state, and federal levels in Michigan to help you ensure your LLC navigates them effectively.

Michigan Local Taxes

The local laws and tax regulations differ greatly between different localities in Michigan, where there are currently 24 unique taxes in place at a local level.

Below is a list of the main local taxes and permits found in Michigan.

Uniform City Income Tax

The Uniform City Income Tax is a special kind of tax that cities in Michigan can choose to levy against businesses and employees on the income they make locally. The tax rate is usually 1% of the total income for residents and corporations and 0.5% of the income earned in the city by non-residents – though some bigger cities like Detroit, Highland Park, and Grand Rapids have higher rates.

Business Privilege Taxes

Business privilege taxes are a group of taxes that businesses must pay for the privilege of conducting certain types of activities or operations within a locality. In Michigan, there are only two of these taxes levied on a local scale:

• Local Casino Gaming Tax: A modified gross receipts tax on casinos in the City of Detroit, which applies to all the money they make from gamblers after paying out winnings.
• County 9-1-1 Charges: A fee that businesses must pay for each phone line or any other communication service that can call 911 in order to fund county emergency call centers.

Sales-Related Taxes

This is a group of taxes that are applied to the sale or use of goods and services. These taxes are generally calculated as a percentage of the price paid by the consumer and then collected by businesses at the point of sale in order to generate revenue for the government.

There are five local sales-related taxes to be aware of in Michigan, including:

• Use Tax/Local Community Stabilization Share Tax
• Accommodations (Hotel-Motel) Taxes
• Convention and Tourism Marketing Fees
• Uniform City Utility Users Tax
• Stadium and Convention Facility Tax

Since your LLC may need to pay several of these taxes depending on its locality and the products it sells, it’s important to speak to an accountant to understand which of them are applicable and ensure you fulfill all your tax obligations.

Property Taxes

The final key group of taxes levied at a local scale in Michigan are property taxes. These are assessed on real estate by local government entities based on the value of the property, the land, and any structures on it. There are a number of different local property taxes in Michigan, some of which include:

• Mobile Home Trailer Coach Tax
• Industrial Facilities Tax
• Obsolete Properties Tax
• Neighborhood Enterprise Zone Facilities Tax
• Hydroponics and Aquaculture Facilities Specific Tax

Recommended: Schedule a free consultation with 1-800Accountant to ensure your business stays legally compliant. 

Michigan State Taxes

Every state has its own regulations and rules that dictate how it taxes individuals and businesses. Below, we’ve delved into the most relevant state-level taxes for LLCs in Michigan. 

Income Taxes

This group of taxes refers to the charges imposed by the state on the earnings of individuals and entities operating within Michigan. Specifically, it includes:

• State Individual Income Tax: A flat tax rate of 4.25% on your income after the IRS’s adjustments – commonly referred to as your federal adjusted gross income.
• State Corporate Income Tax: A flat tax rate of 6% on the income generated by corporations with gross receipts exceeding $350,000 from activity based in Michigan (i.e., income generated elsewhere is exempt). Small businesses meeting certain conditions may qualify for a reduced tax rate of 1.8%.

Understanding the nuances of your state income taxes is crucial for individuals and corporations as they form a central part of your statewide tax responsibilities.

Sales-Related Taxes

Michigan's state sales tax rate is a flat 6% that’s added to the price of tangible goods and services sold within the state and paid by consumers. This typically applies to most goods you can touch and take with you (i.e., personal property such as clothes, electronics, and furniture) – though there are a few exemptions, like prescription drugs and newspapers. 

In addition to this general sales tax, there are a number of additional taxes that are applied to the sale of specific products sold in Michigan, including:

• Use Tax/State Share Tax
• Tobacco Products Tax
• Marihuana Retail Excise Tax 
• Liquor Taxes
• Airport Parking Tax

Note: If your business sells taxable goods or services, you must collect sales tax and obtain a sales tax license from the Michigan Department of Treasury.

Business Privilege Taxes

In Michigan, there are a number of statewide taxes and charges levied on LLCs for the privilege of engaging in certain specific sectors and business activities. The state has authorized 15 of these business privilege taxes, with some of the most common ones including:

• Unemployment Insurance Tax
• Horse Race Wagering Tax
• State Casino Gaming Tax
• State 9-1-1 and Emergency 9-1-1 Charges

The specifics of each of these taxes – including rates, filing requirements, and exemptions – will vary on a case-by-case basis, which makes it important to consult an accountant in order to ensure your LLC’s compliance.

Property Taxes

This group of state-level taxes are applied to property owners in Michigan based on a property’s value and classification. There are four types of property tax to be aware of, including:

• State Education Tax
• State Real Estate Transfer Tax
• Utility Property Tax
• State Essential Services Assessment Tax. 

Transportation Taxes

Transportation taxes in Michigan are a collection of charges imposed specifically on transportation-related items and activities. For businesses that operate vehicles for commercial purposes, there are several key taxes to be familiar with, including:

• Motor Vehicle Registration Fees
• Gasoline Tax
• Environmental Protection Fee
• Aviation Gasoline Fee

For a full list of all the state taxes in Michigan, refer to the Citizens Research Council of Michigan’s Outline of the Michigan Tax System.

Federal Taxes

Regardless of where your business is located, if you run an LLC in the US, there are a number of federal taxes you’ll need to pay. Below, we’ve explored some of the main types your LLC may be required to pay for federal tax purposes:

Income Tax

By default, the IRS will not treat single and multi-member LLCs as separate entities from you and your partners for federal income tax purposes. What this means is that you’ll need to report your share of your LLC’s profits on your individual tax returns and pay federal income taxes on them at the personal rate of your tax bracket.

Having said that, keep in mind that LLCs can also elect to be taxed as C corps or S corps, which changes how these taxes are levied in different ways.

Self-Employment Tax

In addition to income tax, members of single- and multi-member LLCs are responsible for paying self-employment tax on the share of the business’s profits that they report on their personal tax return at the end of the year.

This tax is levied at a flat rate of 15.3% against businesses with net earnings that exceed $400, though it is applied slightly differently to LLCs that have elected to be taxed as S corps or C corps.

Employment Tax

If your LLC hires any employees, it will need to withhold a portion of their salaries to cover various types of taxes on your employees’ behalf – including Social Security, Medicare (FICA), and payroll taxes.

Furthermore, the members of any LLCs that have elected to be taxed as an S corp will be required to pay employment taxes on their salaries. However, in return for this, the remainder of the business’s profit after these salaries have been distributed will be safe from both self-employment and FICA taxes.

Excise Tax

If your LLC engages in certain types of business (such as the sale of alcohol and tobacco or operating a heavy highway vehicle, among others), it may need to pay federal excise taxes in order to do so legally. Each excise tax comes with its own set of rules, rates, and filing obligations you’ll need to be aware of.

Understanding and fulfilling these federal tax obligations is crucial for keeping your LLC compliant and avoiding unnecessary financial penalties and/or fines.

How to File LLC Taxes in Michigan

Below, we’ve outlined the general process an LLC in Michigan will need to follow in order to file their tax return correctly. Note that the specificities of each step will vary slightly depending on how your LLC is organized and the specific locality it’s based in. 

Step 1: Gather Your Documentation

To ensure accurate tax filing, thorough record-keeping is essential. Begin by collecting your personal information, including:

• You and your partner’s Social Security number, date of birth, and residential address
• The previous year’s tax returns
• Your LLC’s Employer Identification Number (EIN)

Then, you’ll need to gather all documentation related to your business’s income, such as:

• Invoices you’ve issued
• Sales transaction logs
• Electronic payment reports from services like PayPal or Stripe

Lastly, assemble all records pertaining to your business expenses, which should cover:

• Lease receipts for your business premises
• Bills for utilities
• Records of office supplies purchases
• Documentation of business-related travel
• Payroll records for employees

Note: Depending on how your LLC is organized and its tax election, you may need different information for your tax return. 

Step 2: Find The Right Tax Forms

Once you've gathered all necessary documents, the next step is to select the correct tax forms for your LLC based on its organization:

• Single-Member LLCs: The business’s total income and expenses are reported on a Schedule C form, which is attached to the owner’s personal tax return and due by April 15 or the following business day if it lands on a weekend or holiday.
• Multi-Member LLCs: File an information return using Form 1065. Members must fill out a Schedule K-1 showing their individual earnings or losses by March 15 or the next business day.
• C Corporations: File a corporate tax return using Form 1120 by the April 15 deadline or on the next business day if it's a weekend or holiday.
• S Corporations: Use Form 1120-S for the corporate tax return and distribute Schedule K-1 forms to shareholders for reporting their shares of profits or losses. The filing deadline is March 15 or the following business day.

Since state and local taxes will have their own individual forms and requirements, we recommend contacting your municipality or hiring an accountant for guidance.

With the appropriate documentation gathered and the correct tax forms for your business entity on hand, you’ll be ready to fill them out and submit them.

Step 3: File Your Taxes

The majority of businesses choose electronic filing for its speed, enhanced security, and reliability compared to paper filing, which can be slower and more prone to errors. Here’s how it works:

• Federal Tax Returns: The IRS provides two electronic services for tax submission: Free File for businesses with an AGI below $72,000 and Free Fillable Forms for those above the threshold.
• State and Local Tax Returns: You’ll need to use an e-file provider specific to your area, which you can find using the State of Michigan's dedicated Find An E-file Provider tool.

Note: These electronic filing tools are best suited for those who are already confident in handling their LLC taxes as if filling out a paper form. 

For new business owners, we recommend opting for the expertise of a tax professional in order to ensure both accuracy and compliance in your tax filings. 

Recommended: Schedule a free consultation with 1-800Accountant to stay on top of your taxes. 

Keep Your Michigan LLC Compliant

While LLCs are generally easier to maintain than corporations, there are certain state and local formalities your LLC must satisfy in order to remain compliant. 

Michigan LLC Annual Report

One of the most important aspects of maintaining your LLC is submitting an annual report (sometimes known as an annual statement) to the Michigan Department of Licensing and Regulatory Affairs (LARA). These reports are due on February 15 every year and need to be filed online or by mail, along with a $25 fee.

Michigan offers a two-year grace period on filing, so you won’t be penalized or charged any late fees if you file within two years of the due date. However, if you still fail to file your LLC's annual report within this time, your business will lose its good standing and face penalties.

The only way to restore your LLC's standing is to file a Certificate of Restoration of Good Standing, which will cost $50 in addition to a late fee of $25 for each past-due annual report.

Note: If you form your business between October 1 and December 31, your first annual report will be due on February 15 in two years.

Licensure and Tax Requirements

In Michigan, almost all businesses are required to obtain various licenses and permits at the local, state, and federal levels. Below, we’ve broken down three of the most common types your LLC may need:

• Sales Tax Licenses: If your LLC plans to sell or lease physical goods that would typically incur sales tax, you’ll need to obtain a specific license online from the Michigan Department of Treasury.
• Professional Licenses: Certain professional industries in Michigan are regulated with specific licenses that your LLC will first need to obtain before it can get started. For example, apart from exempt entities, all businesses handling or serving food to the general public must obtain a food establishment license from the Michigan Department of Agriculture & Rural Development (MDARD).
• Environmental Permits: If the business activities of your LLC pose a potential risk to environmental or public health, securing extra licensing is usually required. As an example, businesses intending to use pesticides for private or commercial purposes will need to first acquire a license from the MDARD to guarantee they abide by safe application practices.

Note: For a full list of the licenses and permits your LLC may need, refer to the State of Michigan’s website.

Michigan LLC Taxes FAQs